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WORLD / America
Greenspan warns on sharp Fed rate cuts
(Agencies)
Updated: 2007-09-17 10:14
Alan Greenspan speaks at Book Expo America in New York in this file photo
from June 1, 2007, to promote his new book 'The Age of Turbulence', due
out on Sept 17 from Penguin Press.[Reuters]?
WASHINGTON - Former Federal Reserve Chairman Alan Greenspan said his
successors at the US central bank should act cautiously in lowering
interest rates because of inflation risks, according to an interview
published on Sunday.
Greenspan said the Fed should be careful not to cut rates too
aggressively because the risk of an "inflationary resurgence" is greater
now than when he was chairman, the Financial Times reported.
The US central bank meets on Tuesday and is widely expected to cut
benchmark federal funds rates by at least a quarter-percentage point to
help the economy weather a housing downturn and a credit crunch.
Greenspan said the US housing slump is likely to deepen more than many
analysts expect, recording as much as a double-digit drop.
The Fed is currently weighing the adverse impacts of the housing downturn
on the broader economy, and recent report employers shed 4,000 jobs in
August raised warning flags.
Greenspan said he would expect "as a minimum, large single-digit"
percentage declines in US house prices from peak to trough, the newspaper
reported. The former Fed chair said he would not be surprised if the the
drop was "in double digits."
Underlying Strength
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But Greenspan, who is promoting a memoir that hits bookstore shelves on
Monday, said that while home prices have not yet hit bottom, turmoil in
housing and credit markets does not look like it will produce a broader
economic downturn.
"There is an underlying strength in the United States," he said in an
interview on the CBS program 60 Minutes.
"And indeed, when you look around the world, even with this extraordinary
credit problem, the economies seem to be holding up. But for the moment
it does not look sufficiently severe that it will spiral into anything
deeper," he said, according to a transcript made available before air
time.
Greenspan stepped down as chair of the Federal Reserve in January 2006
after more than 18 years at the helm of the US central bank. His book is
entitled, "The Age of Turbulence: Adventures in a New World."
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